Bloomberg News

Service Industry Index in U.S. Probably Held at Four-Month Low

June 05, 2012

Service industries probably grew in May at the same pace as the prior month, a sign the U.S. is failing to gain momentum as employment slows and the European crisis intensifies, economists said before a report today.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, held at 53.5, matching April’s four-month low, according to the median forecast of economists surveyed by Bloomberg News. Readings above 50 signal expansion

Budget cuts aimed at reducing sovereign debt and putting countries like Greece and Spain on a more sustainable fiscal path are bringing Europe to the brink of a recession that is rippling through the global economy. The lack of strength in service industries and cooling manufacturing, which was a pillar of the recovery, mean there’s little to spur U.S. growth.

“The U.S. economy is really not making the grade,” said Jonathan Basile, an economist at Credit Suisse in New York. “The softer tone is going to continue. We’ll see a slower profile for growth in the services sector.”

The Tempe, Arizona-based ISM’s report is due at 10 a.m. in New York. Bloomberg survey estimates ranged from 52 to 55.1. The services survey covers industries that range from utilities and retailing to health care, housing and finance.

The report follows June 1 data that showed factories tempered production and pared inventories in May as the global economy weakened. The ISM manufacturing index fell to 53.5 from a 10-month high in April. At the same time, the orders gauge climbed to 60.1 last month, the highest since April 2011.

Shares Stabilize

Stocks yesterday reversed early losses as the two-month slump in equities dragged the Standard & Poor’s 500 Index to its cheapest price-to-earnings valuation in six months. The S&P 500 ended little changed at 1,278.18 at the close in New York after retreating as much as 0.9 percent.

A cooling labor market may help explain why demand has yet to accelerate. Payrolls climbed by 69,000 in May, less than the most-pessimistic forecast in a Bloomberg survey, after a revised 77,000 gain in April that was smaller than initially estimated, figures showed June 1. The jobless rate rose to 8.2 percent from 8.1 percent.

Faster hiring and wage growth is needed to ensure sustained growth in consumer purchases, which increased 0.3 percent in April after a 0.2 percent rise the prior month.

“The overall economy is still our customers’ main concern,” Bill Simon, the U.S. chief executive officer of Wal- Mart Stores Inc. said during a May 17 earnings call. “In particular, they remain concerned about job security or the availability of jobs, followed by gas and energy prices and rising food costs.”

Car purchases eased in May, company data showed June 1. General Motors Co. (GM:US) and Toyota Motor Corp. led five of the six largest automakers in reporting U.S. sales gains in May that trailed estimates as incentive offers failed to draw enough buyers amid slumping employment growth.

          Bloomberg Survey

==================================
                          ISM Non-
                              Manu
                             Index
==================================
Date of Release              06/05
Observation Period             May
----------------------------------
Median                        53.5
Average                       53.4
High Forecast                 55.1
Low Forecast                  52.0
Number of Participants          74
Previous                      53.5
----------------------------------
4CAST                         53.4
ABN Amro                      53.5
Action Economics              53.5
Ameriprise Financial          53.5
Banca Aletti                  54.0
Bantleon Bank AG              53.0
Barclays                      53.0
BBVA                          54.0
BMO Capital Markets           53.5
BNP Paribas                   54.0
BofA Merrill Lynch            53.0
Briefing.com                  52.0
Capital Economics             53.5
Citi                          52.5
ClearView Economics           53.2
Comerica Inc                  53.0
Commerzbank AG                53.5
Credit Agricole CIB           53.7
Credit Suisse                 52.5
Daiwa Securities America      54.0
Danske Bank                   53.5
DekaBank                      53.0
Desjardins Group              53.0
Deutsche Bank Securities      53.0
Deutsche Postbank AG          54.0
Exane                         53.6
Fact & Opinion Economics      54.0
First Trust Advisors          53.7
FTN Financial                 53.8
Goldman, Sachs & Co.          53.0
Helaba                        53.0
High Frequency Economics      53.5
HSBC Markets                  53.5
Hugh Johnson Advisors         55.0
IDEAglobal                    54.0
IHS Global Insight            53.0
Informa Global Markets        52.8
ING Financial Markets         53.0
Insight Economics             53.0
Intesa Sanpaulo               54.2
J.P. Morgan Chase             53.0
Janney Montgomery Scott       54.0
Jefferies & Co.               52.0
Landesbank Berlin             53.0
Maria Fiorini Ramirez         53.5
Moody’s Analytics             53.1
National Bank Financial       53.0
Natixis                       54.0
Nomura Securities             52.6
Nord/LB                       53.0
OSK Group/DMG                 53.3
O’Sullivan                    52.5
Parthenon Group               52.9
Pierpont Securities           54.5
PNC Bank                      55.1
Prestige Economics            52.5
Raymond James                 53.4
RBC Capital Markets           53.0
RBS Securities                52.5
Scotiabank                    53.5
SMBC Nikko Securities         53.5
Societe Generale              55.0
Sparkasse Suedholstein        52.0
Standard Chartered            53.2
Stone & McCarthy Research     54.5
TD Securities                 52.5
UBS                           52.0
UniCredit Research            54.0
Union Investment              53.5
University of Maryland        54.0
Wells Fargo & Co.             53.5
WestLB AG                     53.8
Westpac Banking Co.           52.5
Wrightson ICAP                54.0
==================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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